Estoppel in taxation and reserving the right to challenge

Whenever any assessee faces any Departmental audit, scrutiny, investigation, etc., comparing the amount of liability and the litigation costs involved remains a prudent exercise despite strong merits of a case. Sometimes, certain other factors such as unnecessary interruption of business, fear of facing harassment etc. also play a role in deciding not to proceed with litigation and to pay off the liabilities for buying peace of mind.? ????

An important question that crosses one’s mind is whether the Doctrine of Estoppel, which prevents a party from taking a stand contrary to that taken in the past, will be applicable in such a situation. In other words, whether the act of discharging of the liability precludes an assessee from challenging the same in the future if the need arises. ?

Let’s discuss few judgements in this regard.

In the case of Dunlop India Ltd.[1], the question before the Supreme Court was whether the imported V.P. latex was classifiable under Item No. 39 of the Indian Tariff Act, 1934 or Item No. 87. One of the arguments of the Department here was that the assessee itself declared Item No. 87 in the Bill of Entries on import of V.P. latex.

Here, the Supreme Court held that there is no estoppel in law against a party in a taxation matter. The assessee may have given the classification in accordance with the wishes of the Authorities or under some misapprehension in order to clear the goods from Customs. It was further held that when the law allows the assessee the right to ask for refund on a proper appraisement, no significance can be attached to the aforesaid ground of the Department.

Similarly, in the case of Hero Motors Ltd.[2], the appellant claimed refund of cenvat credit on export of finished products. Subsequently, due to inaction by the Departmental authorities, the appellant submitted letters stating that since, it is interested in getting the refund, it will not claim interest due to it on account of delay in sanctioning of the claims. However, when the refund claims were partially sanctioned without interest, the assessee filed an appeal claiming interest for delay in refunds.

Here, the Delhi Tribunal relied on the decision of the Supreme Court in Dunlop India (supra) and held that just because the appellant had given up their claim of interest by way of letters, they would not be estopped from challenging the denial of interest when they are entitled for the same under Section 11BB of the Excise Act.

Relying on the aforesaid judgements, it can be said that the Doctrine of Estoppel does not apply to tax law. Thus, an assessee can take a stand contrary to what was taken by him in the past.

However, there are few contrary judgements also in this regard. The Delhi Tribunal in the case of Vikas Spinners[3] held that the assessee cannot legally challenge the loading of value of imported goods once the same was accepted by it and duty was paid thereon without any protest or objection. The Tribunal also noted there was nothing on record to suggest that the loaded value was accepted only for the purpose of clearance of goods and the assessee reserved its right to challenge the same subsequently. Thus, it was held that the assessee is legally estopped from taking somersault. It may be noted that the case of Dunlop India was not discussed by the Tribunal.

Similar view has been taken in various other decisions[4].

In the case of Metenere Limited[5], the issue before the Ahmedabad Tribunal was whether the letter submitted by the appellant can be considered as acceptance of value enhanced by the Department. The Tribunal, recognising that contrary judgements are in place on this issue, remanded the matter to the assessing officer.

Though reliance can be placed on the favourable judgements discussed above to argue that estoppel does not apply to tax matters, keeping in mind the conflicting judgements, prevention is always better than cure. Therefore, in order to avoid being tangled in the web of unnecessary litigation, it is recommended that while depositing any liability, a letter is submitted to the Departmental authorities stating that the right to challenge the liability in the future has been reserved. ????????????

Please feel free to reach out to me for any clarification at +91-8800489350. ?

[1] Dunlop India Ltd. & Madras Rubber Factory Ltd. v. Union of India [1975 (10) TMI 94]

[2] Hero Motors Ltd. v. CCE [2014 (7) TMI 482- CESTAT New Delhi and 2016 (12) TMI 92- CESTAT New Delhi]

[3] Vikas Spinners v. Commissioner of Customs [2000 (11) TMI 196- CEGAT, New Delhi]

[4] Guardian Plasticode Ltd. v. Commissioner of Customs [2007 (12) TMI 37- CESTAT Kolkata]

Commissioner of Customs v. Manvi Exim Pvt. Ltd. [2022 (7) TMI 466- CESTAT New Delhi]

[5] Metenere Limited and Teneron Limited v. Commissioner of Customs [2022 (6) TMI 332-CESTAT Ahmedabad]